Japan is lumbering toward default, veteran investor Kyle Bass said Wednesday at the 6th Annual Value Investing Congress in New York City.

As part of his presentation called “Does Debt Matter?” Bass described in stark detail how one of the largest economies in the world will eventually be stuck in a permanent structural deficit, whereby its revenues cannot cover the interest on its massive debt, much less the debt itself. According to the International Monetary Fund, Japan’s debt accounted for 218.6% of its 2009 gross domestic product, making it the largest public debt of all industrialized nations.

While Bass, a principal at hedge fund Hayman Advisors, says he doesn’t know when the situation will unravel for Japan, he argued that even now the country is toying with its “Keynesian end point.” Its current social security expenditures and interest payments on debt total about 44 trillion yen a year, versus the 41 trillion yen the country is bringing in.

Bass is best known for predicting in 2007 that subprime mortgages were going to cripple credit markets, another situation that moved swiftly from impossible to inevitable.

To bet on a Japanese default, Bass said that in general he is able to cheaply buy out-of-the-money interest rate call options on Japan, and if he is right he can make 50 to 100 times his invested capital. It echoes buying credit default swaps on subprime mortgages, another strategy that was out of reach for retail investors.

Bass said that the country’s graying population is exacerbating its deficit problem, given that Japan’s working age population peaked last year, and that the country is not open to immigration. “Given their xenophobia, there will be more people exiting than entering,” he said.

Bass is not the only person to raise the specter of a Japanese default. The country’s own prime minister Naoto Kan warned this June that the country could face a Greek-like debt crisis if something weren’t done soon. And late last month, Hedgeye analyst Darius Dale raised similar questions in his story, “Japan: The next global time bomb?”

But Bass believes that it’s just too late for Japan, as well as many other debt-burdened countries that have “suddenly found religion” and tried to reduce their debt. Revenues are shrinking and the load is too great.